Company Claims False Patent Marking Statute Is Unconstitutional

Some individuals and small businesses see the lawsuits as a new and exciting business opportunity. Most large, established companies see them as a nightmare.

Hundreds of companies throughout the U.S. have been dragged into lawsuits for marking their products with inaccurate or expired patent numbers, a violation of the false patent marking statute. They face fines of up to $500 for each falsely marked item--so a defendant that makes mass-produced items may be at risk of fines worth billions, or even trillions, of dollars. Those bringing the suits get to keep half the fines, while the rest go to the federal government.

The large sums at stake provide a strong incentive for parties to file these false patent marking suits. As a result, close to 1,000 of them have been filed since January 2010. And the number continues to climb.

"It is like a feeding frenzy," says Michael Risch, associate professor at Villanova University School of Law.

Others, including some corporate defense attorneys, use stronger language. "It is just harassment. This is the legal system at its worst," says Andrew J. Dhuey, a solo practitioner who is defending Wham-O Inc. in FLFMC, LLC v. Wham-O, Inc. against allegations that it marked many of its Frisbees with expired patent numbers.

That litigation is now before the Federal Circuit. The stakes are high, and not just for Wham-O. If the court accepts Wham-O's argument--that the false patent marking statute is unconstitutional--the decision could effectively end not only the suit against Wham-O, but the whole flood of false marking suits.

"It would put an end to the harassment facing businesses around the country," Dhuey says.

Insufficient Control

The false patent marking statute is on shaky constitutional ground, according to many experts. The statute may violate part of Article II of the Constitution, which requires that the executive branch "take care that the laws be faithfully executed."

The "take care" provision makes the executive branch responsible for enforcing the nation's laws. Enforcement powers may be delegated to those outside the executive only if the executive retains "sufficient control" over these outside enforcement actions, the Supreme Court held in a 1988 decision, Morrison v. Olson.

The false patent marking statute authorizes private parties to enforce one part of federal law, empowering anyone to file suit against those who violate patent law by placing false patent markings on products.

But many experts say the statute doesn't give the executive branch "sufficient control" over the actions of these private attorney generals. That, too, is the conclusion of a federal district court in Ohio, which ruled in late February that the false marking statute violates the "take care" clause. In Unique Product Solutions Ltd. v. Hy-Grade Valve, Inc., the court held that although the statute provides only civil penalties, it is a criminal statute and must satisfy the requirements laid out in Morrison--which it fails to do.

Taking Care

Three other district courts have ruled on this constitutional issue, however, and they all found the false patent marking statute satisfies the "take care" clause. But they didn't agree on why.

In the 2009 decision in Pequignot v. Solo Cup Co., a Virginia federal district judge noted that the false marking statute is part of a long line of qui tam laws, which authorize private parties to enforce various laws: "Qui tam statutes were part of a long-accepted practice dating back centuries. It is unlikely that the framers would have written a Constitution that outlawed this practice, and then immediately passed several qui tam laws that unconstitutionally encroached on Executive Branch power before the ink on the Constitution was even dry. ... The long history of qui tam actions strongly supports a finding of their constitutionality," the judge wrote.

The Virginia court conceded that the false patent marking statute differs from many other qui tam statutes in one important respect. The government has significantly less control over qui tam suits filed under the false marking statute (see "District Decision").

But because the false patent marking statute creates civil, not criminal, liability, it does not "cut to the heart of the Executive's constitutional duty to take care that the laws are faithfully executed," the court stated in Pequignot. Thus, the duty to "take care" could be satisfied with "a significantly lesser degree of control than the Supreme Court required in Morrison," the court held. So although the government had far less control over false marking suits than over other qui tam suits, under this lower standard, there was still enough control to satisfy the "take care" clause, the court concluded.

A California federal district court found this reasoning persuasive. It adopted it in Shizzle Pop, LLC v. Wham-O, Inc. to reject a "take care" challenge to the false marking statute.

In Their Court

In Zojo Solutions, Inc. v. The Stanley Works, a federal district court in Illinois last year used different reasoning to reject a "take care" challenge to the statute. The court noted that in the Federal Circuit's seminal 2009 ruling on the false marking statute, Forest Group, Inc. v. Bon Tool Co., the appellate court didn't mention any constitutional problem. "[T]hat court's failure to speak of any potential problem of unconstitutionality could be viewed as confirming the validity of the statute," the Illinois district court stated, adding that this constitutional issue would better determined by the Federal Circuit.

The issue has reached the Federal Circuit, but it is unclear whether the court will decide it. Courts usually try to avoid ruling on constitutional issues, and this case offers the Federal Circuit an easy way out. "Because the 'take care' issue wasn't resolved by the district court, the Federal Circuit may remand the issue to the lower court," says David G. Oberdick, of counsel at Meyer, Unkovic & Scott. Oberdick represents FLFMC LLC, the entity suing Wham-O in this case.

On the other hand, the Federal Circuit could decide to confront the "take care" issue because of judicial economy. "Lots of cases are raising this constitutional issue," says Dhuey. "It's coming up in lots of trial courts, with lots of litigants. I think the Federal Circuit will conclude it should resolve the issue now, rather than having case after case raise this issue."

Even if the Federal Circuit sidesteps the "take care" question in this case, the issue isn't going away. It will continue to be raised at the district court level, and unhappy litigants will appeal. The Federal Circuit seems unlikely to avoid this constitutional issue for long.